Google net rises, co-founder Page named CEO

Schmidt to be executive chairman; Brin’s focus on ‘strategic projects’

By

JohnLetzing

SAN FRANCISCO (MarketWatch) — Google Inc. shuffled its top leadership Thursday, at the same time posting a 29% rise in fourth-quarter profit that easily topped analysts’ estimates, thanks to strong demand for advertising on the company’s search engine and contributions from newer businesses.

The company said co-founder Larry Page will assume the role of chief executive officer starting in early April. Co-founder Sergey Brin will “devote his energy to strategic projects,” Google said, while current CEO Eric Schmidt becomes executive chairman.

News Hub: Page to Replace Schmidt as Google CEO

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Google said late today that co-founder Larry Page will replace Eric Schmidt as chief executive. Julia Angwin talks to Lauren Goode about the surprise change atop the internet giant.

In that role, Schmidt will remain as an adviser to Page and Brin, Google said. “Day-to-day adult supervision no longer needed!,” Schmidt, who is 55 and roughly 20 years older than the co-founders, wrote on his Twitter account.

Mountain View, Calif.-based Google
GOOG, +1.28%
reported fourth-quarter net income rose to $2.54 billion, or $7.81 a share, from $1.97 billion, or $6.13, in the year-earlier period. Revenue came in at $6.37 billion. Excluding one-time items, Google said earnings for the latest period were $8.75 a share.

Analysts polled by FactSet Research had expected Google to report earnings excluding items of $8.06 a share and $6.05 billion in net revenue.

“It was a phenomenal ending to a very good year,” Google Chief Financial Officer Patrick Pichette said during a conference call with analysts.

“This was a big quarter” for Google, said Caris & Co. analyst Sandeep Aggarwal, as the company’s results are “a reflection of a very strong core business, and the non-core businesses ramping up.”

Aggarwal said that Schmidt’s shift away from the CEO role is “not something we expected, but we’re not totally surprised.”

The analyst said Google had been “soft pedaling” the notion of Schmidt shifting roles, and that investors are likely to react positively to having Page running the company.

Shares of Google rose 2% to $639.50 in after-hours trading, following the earnings and management-change announcements.

‘Larry is ready’

“I could not be more excited about moving us forward,” Page said during the company’s conference call, adding that Brin and Schmidt “have really inspired and moved me, and I’m looking forward to many more decades of working together.”

The Google triumverate has stated publicly in the past that it anticipates sticking together to run the company until about 2024.

“I believe Larry is ready,” Schmidt said on the call Thursday. “It’s time for him to have a shot at running this.”

Page and Brin co-founded Google in 1998. Schmidt has served as CEO since Aug. 2001.

Brin said during the call that he will now work more on his “personal passions,” including forthcoming products that he declined to describe in any detail.

As its market power has expanded, Google has come under increasing amounts of regulatory scrutiny. For example, the company’s planned, $700 million purchase of ITA Software Inc. is being closely reviewed by the U.S. Justice Department, while European competition authorities are investigating how the company ranks results in its search engine.

Schmidt said that his new role will have him increasingly engaged in “various government communications,” adding that he expects to be making the case for the company’s “pro-competitive” practices “for a long time.”

“We’re trying to be as transparent and as collaborative as possible,” Schmidt said.

The prices paid by advertisers to Google, which are calculated on an auction basis, rose 5% in the quarter. Analysts had been looking for the so-called cost-per-click growth rate to come in anywhere between flat and up 3%.

Pichette said much of company’s success in the period came simply as the result of more people getting online and doing their holiday shopping there — and using Google as a tool.

“People have moved online,” Pichette said, which “brings a lot more participants into these [search advertising] auctions, because they want to be where the users are.”

Pichette rejected the notion that Google’s “Instant” service — which shortens the time needed to receive search results — has helped boost the company’s financial performance as “a myth.”

Google, which holds a roughly 65% share of the U.S. Internet-search market, has been moving aggressively into newer businesses such as online display and mobile phone advertising. In October, the company disclosed that its mobile business was adding more than $1 billion in revenue on an annual basis, and display advertising was contributing more than $2.5 billion annually.

Research firm eMarketer has estimated that Google accounted for 13.4% of all U.S. display advertising revenue last year, an increase from 4.7% in 2009.

Pichette said Thursday that revenue at YouTube more than doubled during 2010. However, Google did not disclose specific financial data for the video service.

Even as the company has expanded, analysts have questioned Google’s aggressive spending.

On Thursday Google, which has said that it’s in a “war for talent,” disclosed that it added more than 1,000 employees during the fourth quarter, bringing its total to 24,400.

“Yes, we’ll continue to invest heavily” in 2011, Pichette told analysts, though he said the company would take a disciplined approach to its spending.

Google’s total costs and expenses rose to $5.5 billion in the quarter, from $4.2 billion a year earlier.

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